What it means
Turkmenistan introduced a redenominated manat in 2009, replacing the old currency at a rate of 5,000 old manat for one new manat. The change removed lots of zeros from prices and made everyday amounts easier to handle.
The central bank sets an official exchange rate against the US dollar and has held it steady for long periods. Reports from businesses and analysts have often pointed to a gap between this official rate and the rate available on the parallel (informal) market, which is something to keep in mind when planning any dealings there.
For a finance team, the practical issue is convertibility, meaning how easily the currency can be swapped for dollars or euros. When access to foreign currency is limited, companies can find it hard to move profits out of the country or pay overseas suppliers on time.
That raises questions about which exchange rate to use for accounting. Under standard accounting practice you translate foreign amounts at the rate you can really access, so a business needs to document its judgement and apply it consistently.
Economic exposure to the manat usually comes through energy and commodity trade, because Turkmenistan's economy leans heavily on natural gas exports. Company contracts there are therefore often priced or settled in dollars, with the manat used mainly for local costs such as wages and rent.
Anyone who needs a figure for a plan or a contract should confirm current official rules directly with their bank or the central bank. An old rate should never be relied on, since regulations on currency conversion can change.
In practice
Real-world examples.
Example
A construction company bids for a building contract in Turkmenistan. It prices imported steel in dollars and local labour in manat, and it fixes the budget using the official rate. It also builds in a contingency in case access to dollars is slower than planned.
Example
A consumer goods exporter sells to a distributor there and asks to be paid in dollars. The distributor can only obtain dollars gradually, so the exporter allows payment in instalments and reflects the delay in its credit risk assessment.
Example
A multinational's finance team prepares consolidated accounts and has a small subsidiary operating in manat. The controller documents the exchange rate used for translation and explains the choice in the notes, so auditors can follow the reasoning.
Formula
Calculation
Amount in manat = amount in dollars x exchange rate (manat per $1)
Suppose, purely for illustration, that the official rate is 3.50 manat per $1. A company in Turkmenistan has a local payroll of 420,000 manat per month and wants to know the dollar equivalent for its group budget.
Dollar cost = 420,000 / 3.50 = $120,000.
Going the other way, if a customer owes $20,000 and pays in manat at the same rate, the amount is 20,000 x 3.50 = 70,000 manat. If a different, less favourable rate of 4.50 manat per $1 applied to the dollar cost of the payroll, the same 420,000 manat would equal 420,000 / 4.50 = $93,333, which shows how much the choice of rate can change the reported figure.Case study
Seen in the real world.
Caspian Ridge Engineering is a fictional services firm with a branch in Turkmenistan, and this is an illustrative scenario. The branch earned 2,100,000 manat in a year, which at an assumed official rate of 3.50 per $1 was reported to head office as $600,000.
When the group tried to move the cash to a bank outside the country, the branch could obtain only part of the dollars it needed on the official channel. The remaining profits stayed in manat, sitting in a local account.
The group finance director responded by treating the trapped cash separately in its liquidity forecast and by renegotiating contracts so that more of the branch's revenue was received in dollars. The takeaway is that a reported profit in a restricted currency is not the same as cash you can freely use elsewhere.
Watch out
Common mistakes.
- Using the official rate for every purpose without checking whether you can really convert at that rate. Document which rate you use and why.
- Assuming a stable official rate means no currency risk. Restrictions on convertibility are a risk in their own right, even if the headline rate does not move.
- Quoting an old exchange rate in a contract or plan. Rules and rates can change, so confirm the position when you sign and when you settle.
Questions
People also ask.
What is the ISO code for the Turkmenistan manat?
It is TMT, and one manat is divided into 100 tennesi.
Is the manat freely traded?
No. Access to foreign currency has been controlled, so it is treated as a managed and restricted currency rather than a freely floating one.
Which currency do foreign companies usually price in?
Many contracts are denominated in dollars, with the manat used for local operating costs.
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